Russian oil company problems likely to affect global oil prices

The World Today - Monday, 25 October , 2004 12:22:00
Reporter: Emma Griffiths

ELEANOR HALL: The high price of oil is already threatening global economic growth, but that price could yet be pushed higher by events in Russia.

One year ago the future of the Russian oil giant, Yukos, was thrown into question when its owner, Russia's richest man Mikhail Khodorkovsky, was arrested at gunpoint on charges of tax evasion and fraud.

Mr Khodorkovsky's case is still meandering its way through the Russian courts, but it now appears that his company is set to be dismembered and sold off by the end of the year to pay off its massive tax debts.

As our Moscow Correspondent Emma Griffiths reports, analysts say the sale is highly likely to disrupt Russia's oil supply and put pressure on the world price.

EMMA GRIFFITHS: The Russian market is full of rumours, and its most talked-about topic for more than a year now has been the oil giant, Yukos. The company is Russia's largest oil producer – it accounts for 1 in every 5 barrels of oil.

It's been accused of using offshore zones to avoid taxes. The tax department has served it with a multi-billion dollar bill. Authorities have frozen the company's accounts and are now threatening to auction off its largest production unit – Yuganskneftegaz – or Yugansk.

It accounts for two thirds of the company. And there are persistent rumours that the state is planning to auction it off at a far lower price than its true value, to state-owned gas company Gazprom.

Oil and gas analyst for Brunswick UBS, Paul Collison, says if that happens it would amount to renationalisation of a huge part of Russia's oil industry.

PAUL COLLISON: It would be very negative for Russia's image, and there'd be the perception that the Putin administration is basically taking an asset from a private company and in a sense renationalising that part of the company. So there will definitely be costs, and it's not just an image issue, the market will react and Russia as a country will pay for it.

EMMA GRIFFITHS: Oil and gas analyst Paul Collison says the sale of the key production unit, Yugansk, could disrupt supply from Russia – the world's second largest producer of oil.

PAUL COLLISON: Yugansk is a big company by any global standards. Just that one entity produces over a million barrels a day. And it's not only about producing the oil, they also have to transport that oil, they have to refine it, they have to market it and sell it.

All of that to this moment is being done by Yukos management, Yukos production people. And if all of a sudden it now belongs to Gazprom then there's a big risk that there'll be disruption. There are all sorts of questions that, you know, down the road there could be interruption to the oil sector. So they still haven't seen the damage yet.

EMMA GRIFFITHS: The full damage to Yukos' former chief, Mikhail Khodorkovsky, still hasn't been felt, either. The multi-billionaire has been in jail for one year and could face a sentence of ten more. Kremlin-watchers believe there's little chance he'll be set free.

Analyst Paul Collison again.

PAUL COLLISON: The likelihood is that he's gonna spend at least a couple of more years in prison, if not more than that. You know, he and his company, they're still very, very wealthy.

So, you know Putin and Khodorkovsky hate each other, and they are bitter rivals at this point. And probably the more time Khodorkovsky spends in jail the more bitter he becomes. So if he's let out of jail he's probably a) pretty upset, and b) he's still going to be very wealthy, and seems like that would be a threat to Putin. So it looks bad for him.

EMMA GRIFFITHS: The trial of Mikhail Khodorkovsky is barely half-way through, there's been a parade of more than seventy prosecution witnesses so far, they still have another 60 listed to call.

And then his defence lawyers get their turn, in what they've described as a "sham" trial.
They predict the case might wind up in January, but no sooner.

This is Emma Griffiths in Moscow for The World Today.

(From ABC, 25.10.2004)